The Financial Services Authority has slapped a £750,000 fine on the Royal Bank of Scotland for breaches of money laundering rules. It is the first penalty levied by the UK watchdog for compliance failures under the new regulatory regime.
The FSA’s investigation revealed weaknesses in RBS’s anti-money laundering controls across its retail network. The investigation found that RBS failed either to obtain sufficient ‘know your customer’ documentation to establish customer identity, or to retain such documentation, "in an unacceptable number of new accounts opened across its retail network in early 2002".
The regulator says there was insufficient evidence to show that the clients were who they had claimed to be, whilst in some cases RBS was unable to supply copies or details of the documents (such as a valid passport, a driving licence, a recent utility bill) it had used to verify identity.
The breaches occurred despite increased regulatory emphasis on the importance of effective anti-money laundering controls in anticipation of the FSA’s new powers to oversee compliance from 1 December 2001.
Carol Sergeant, managing director of the FSA, says the fine demonstrates that the FSA takes anti-money laundering compliance very seriously.
"The steps RBS took to satisfy itself that their clients really were who they claimed to be were inadequate," she says. "We have made clear that we expect all financial firms to have strong and effective anti-money laundering procedures in place and - equally importantly - to ensure that they are properly implemented."
In mitigation, RBS discovered the problems through its own testing in December 2001. Additionally, although the breaches revealed weaknesses in RBS’s anti-money laundering controls, in most cases at least some attempt had been made to identify the customers.
RBS says it devoted considerable resources at an early stage to correct the problem and has instituted group-wide monitoring of ‘know your customer’ compliance rates in an effort to ensure that a similar problem does not occur again.
Says Sergeant: "As a result of this, and RBS's open and constructive approach to the FSA's investigation, the fine imposed is very substantially lower than it otherwise would have been."
She adds that there is no evidence that any money laundering took place as a result of the failings.